Fast-food operators are likely to face some headwinds over the coming year, broking house Morgans says, but there is still room for savvy operators to grow.

Share price gains still on the table

Morgans has named two companies as their top picks in the sector, with share price targets that imply solid gains for investors.

But the broking house warns that the consumer outlook is continuing to weaken, with interest rate rises at the centre of that theme.

Morgans said:

The RBA is back at 4.35% after three rises this year and looks set to hike again in late September. Consumer sentiment has dropped to 84.4, below neutral and weaker than a year ago, with real incomes still going backwards. We expect FY27 to be a tougher year for the consumer than FY26.

The broker said that for fast-food operators, growth has to come from increased sales, not price, “because a household absorbing a fourth rate rise will likely trade down or out if prices rise further again”.

They added:

Operators that lift revenue without leaning on price can hold margins as the cost base inflates, while those still taking price to cover soft comps risk losing volume. The sustainable way to hold margin is to grow the top line on traffic, attach and mix behind a value proposition strong enough that customers keep coming without price cuts.

Broker names its two picks

Morgans’ top pick in the sector is Guzman Y Gomez Ltd (ASX: GYG), with a price target of $31 against $25.04 at the time of writing.

They said:

It is the highest-quality operator in our coverage, with strong unit economics and ambitious but achievable FY30 targets. It took the least price and still grew same store sales 5.3%, almost all on traffic, and its fresh, protein-led menu aligns best with consumer trends. Management has commenced the buy back and, given its strict capital allocation and ROI hurdles, we view this as a clear demonstration of where it sees value. The next catalyst is the quarterly trading update in October.

Second in line is Collins Foods Ltd (ASX: CKF), with Morgans having a price target of $10.60 against $7.93 at the time of writing.

Morgans said re Collins Foods:

In our view, CKF screens cheap and holds a strong value proposition, given KFC’s well placed value menu in a tough consumer environment. Kwench and daypart expansion into late-night and breakfast add further opportunity to attach and increase traffic. The growth opportunity in Germany is not priced in by the market, and we see the midpoint of its store opening target (45-90 by FY30, without acquisitions) as achievable.

Morgans has a hold rating on Domino’s Pizza Enterprises Ltd (ASX: DMP) with a price target of $20 compared to $19.45 at the time of writing.

The post These 2 ASX fast food companies could jump 23% to 33% appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Domino’s Pizza Enterprises. The Motley Fool Australia has recommended Collins Foods and Domino’s Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), and CSL Ltd (ASX: CSL) are three of the biggest shares on the ASX.

I think all three have strong long-term investment cases, although for quite different reasons.

Here is why I would be happy to buy each of them today.

BHP shares

BHP would be my pick for long-term exposure to the resources sector.

The company already owns some of the world’s largest mining operations, giving it a strong base from which to keep investing.

Iron ore remains an important source of cash flow, but I am particularly interested in where BHP’s copper business could be heading.

Copper will be needed for electricity networks, renewable energy infrastructure, electric vehicles, data centres, and many other areas likely to attract significant investment over the coming decade.

Bringing new copper supply online can also take many years. BHP already owns major assets and has the financial strength to continue investing, while weaker competitors may struggle.

Commodity prices can be volatile, so earnings will never be perfectly smooth. But I think BHP’s scale and portfolio of long-life assets make it one of the ASX miners I would be most comfortable owning for years.

CBA shares

CBA is my preferred major Australian bank.

The company has built extremely strong customer relationships across home lending, deposits, business banking, and everyday financial services.

I also think its technology gives it an important advantage. The CommBank app has become central to how many customers manage their finances, making it easier for CBA to deepen those relationships and offer additional products.

That does not mean the bank will suddenly become a rapid-growth company. Australian banking is highly competitive, and CBA regularly trades at a premium valuation.

But I think the quality of the business can justify paying more than I would for some of its rivals.

Add in the potential for fully-franked dividends, and I think CBA can offer investors a strong combination of income and capital growth.

CSL shares

CSL gives me a completely different opportunity.

The healthcare giant has been through a difficult period, but I think the earnings outlook is improving.

CSL has major positions in plasma therapies, vaccines, and specialist medicines, backed by a global collection network and operations that would be extremely difficult to replicate.

The business also has opportunities to improve margins as productivity increases and some of the pressures that weighed on recent results ease.

CSL shares have already recovered substantially from their lows, so the bargain available earlier this year has been missed. Even so, I still think the valuation leaves room for worthwhile returns if earnings continue growing over the next few years.

Foolish takeaway

Yes, I think BHP, CBA, and CSL shares are all top buys today.

BHP gives me exposure to resources that should remain important for decades, CBA is the Australian bank I would most want to own, and CSL still has room to rebuild earnings after a difficult period.

I would be comfortable buying any of the three and giving the investment plenty of time to develop.

The post Are BHP, CBA, and CSL shares top buys? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in CSL and Commonwealth Bank Of Australia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended BHP Group and CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

I’m sure plenty of Australians would love the idea of earning $75,000 a year in passive income and being able to retire at 45. I believe investing in ASX shares could be the best way to achieve that goal.

Some Aussies may love to work, while others may want to spend more time with loved ones, travelling or whatever else they want to do.

There are a variety of appealing reasons why reaching $75,000 of annual passive income could be compelling.

Let’s look at how we can unlock those targeted goals.

The power of compounding

Every investor who wants to retire early should view compounding as one of their closest financial friends.

Albert Einstein once supposedly said:

Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.

Compounding can help us benefit from investments that are growing on their own, over multiple years. When interest earns interest, investors can see their dollars grow into a much larger figure. Those investments are growing all by themselves, rather than requiring additional funding from our own finances.

To show how positively compounding can help Australians grow wealthier, I’m going to run through two potential examples.

Imagine someone who is 20 years old right now and manages to set aside $1,000 each month to invest in ASX shares. That implies an annual investment total of $12,000. Assuming the portfolio returns an average of 10% per year – which the share market has done over the long-term – it would grow into a value of $1.18 million after 25 years.

Turning to another example, let’s think about someone who starts five years later at 25. Hopefully that person would be able to earn more and save more. Let’s say they can invest $1,500 per month. If the portfolio also returned an average of 10% per year, it would grow to $1.03 million after 20 years.

Which ASX shares Aussies could buy for passive income to retire

If I use the two example portfolios above, a $1.18 million portfolio would require a dividend yield of 6.3% to make $75,000 of annual passive income. Meanwhile, a $1.03 million portfolio would require a dividend yield of 7.3%.

Those are certainly high dividend yields to target for income. It may be wise to consider building up the portfolio a bit further (for even just a year or two) before retiring, as that would allow investors to target a wider variety of investments.

If I were targeting dividend yields of more than 6%, or even above 7%, I would want to acknowledge that higher yields can come with a higher risk of being reduced.

But, there are a few names I’d include.

For portfolio average dividend yield that’s in the 6.3% or so range, I’d look at names like Medibank Private Ltd (ASX: MPL), PM Capital Global Opportunities Fund Ltd (ASX: PGF), Dexus Industria REIT (ASX: DXI) and MFF Capital Investments Ltd (ASX: MFF).

Some of the names I’d consider thinking of that yield at least 7% or better include Future Generation Australia Ltd (ASX: FGX), Future Generation Global Ltd (ASX: FGG), Hearts and Minds Investments Ltd (ASX: HM1), WCM Global Growth Ltd (ASX: WQG) and Charter Hall Long WALE REIT (ASX: CLW).

I believe investors seeking to retire with $75,000 in annual passive income would be well served by the above stocks, as well as other ASX shares that could deliver strong growth.

The post How much do I need to retire on $75,000 a year at 45? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Future Generation Australia, Future Generation Global, Hearts And Minds Investments, Mff Capital Investments, and Wcm Global Growth. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Mff Capital Investments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.